Argentina Showed That Justice Means Standing up to the Financial Markets

My article 'Vulture Funds - coming to a country near you?' has certainly ruffled the feathers of Robert J Shapiro, co-chairman of the American Task Force Argentina, which represents some vulture funds. It's his job to extract every last dollar out of Argentina, but his attack is wrongheaded on three counts.

First, Dr Shapiro says Argentina is "not poor; it is poorly governed". The notion that Argentina was not poor at the time of its default in 2001/2 is ludicrous. After years of appalling advice from the IMF, expressing the logic of the financial markets, the country was on its knees. Despite three years of recession, the economy kept contracting, and things kept getting worse. Over half the population - 20 million people - was living below the poverty line.

Under current international law, a country cannot go bankrupt, because unlike a company or individual, a country can theoretically go on squeezing its people and resources forever. In some countries many people have died and the debts have kept being paid. So for a country, bankruptcy is a political issue - when do those people say 'we will no longer see our lives getting worse in order to pay off our creditors'? In Argentina that moment clearly came at the end of 2001, when the country saw five Presidents in two weeks.

To have continued paying those debts, with all the conditions the creditors effectively placed on the country, would have meant deepening poverty. Eventually the people of Argentina said that their rights came before the 'rights' of the global financial sector. It has of course suffered pain as a result - this was not a case of a "cavalier attitude toward its international obligations" at all.

But default was right both ethically and economically. Argentina became the fastest growing economy in the Western hemisphere. Eleven million people were pulled out of poverty and unemployment more than halved in the successive 5 years. Responding to people and their needs is seen as 'poor governance' in the eyes of those who put investor profits above all else.

Everything is not perfect in Argentina to this day - partially because Argentina did not take stronger action with its debt on the basis of a full debt audit. But the situation is vastly better than it was in 2001.

This could only happen by some of Argentina's creditors taking a write down. Financial investment always involves risk. When investing in a company, bankruptcy means investors are unlikely to get their money back. The creditors who have least right to complain are those who bought the debt on the secondary debt market in full knowledge of the default - like some of the vulture funds Dr Shapiro organisation represents. They play a high-risk game at the expense of people in countries like Argentina. In this case the vulture funds got what they deserved.

Second, Dr Shapiro asserts that Argentina's 'dirty war' is irrelevant to the debts being pursued today, as they were contracted later. Yet it was during this period that Argentina first became very indebted. Let's remind ourselves what happened. Under the brutal dictatorship of the late 1970s and early 1980s - the 'dirty war' - 30,000 people were 'disappeared' and loans fuelled military spending, speculation and capital flight. A court case in 2000 found that loans to Argentina under the dictatorship were part of "a damaging economic policy that forced [Argentina] on its knees through various methods ... and which tended to benefit and support private companies - national and foreign - to the detriment of society".

This debt should never have been built up - banks shouldn't have made the loans given they knew all too well what was going on. Many activists campaigned for Argentina to audit and repudiate this debt. Instead of which, in order to keep paying this odious debt, Argentina's governments accumulated ever more debt. New loans repay old debts. This is how many countries across the world got into serious debt in the first place. US banks benefited handsomely from the indebtedness of the 'dirty war'. And they continued to benefit as the debt was recycled through bonds. Sooner or later the good times have to end - in the name of justice.

Finally, Dr Shapiro says the anti-vulture funds law passed in the UK last year will not benefit even the countries it claims to protect - low income, highly indebted countries. Here we see his true interests. It is not that Argentina is not poor enough, but that any legislation, anywhere which restricts the ability of money to make money - be it through vulture funds or not - must be bad.

The case of Liberia saving $40 million in vulture payments after the legislation came in is proof of how a very impoverished country did benefit. Indeed the British government accepted that argument when they made the law permanent last year. What possible benefit can it have been to Liberia to have these odious funds harassing the country on the basis of a clear dictator debt?

Fighting poverty and inequality is not simply a matter of dispensing charity. It is a matter of changing the systems and institutions that create poverty. The financial system - as we have all experienced over these last few years - has come to have a massive impact on the lives and livelihoods of nearly everyone on the planet. As such it needs to be radically restructured - it needs to be directed for the benefit of people everywhere.

Sovereign debt has always been a way of redistributing money - within a country or between countries. The crucial issue for anyone interested in tackling injustice is who should pay the price when countries find themselves in a debt crisis. Creditors must accept the downside when investments go wrong just as they happily accept the upside when they go right. Certainly some pension funds lost out in Argentina's default - though their losses would have been limited if they took one of the offers being made rather than holding out. This should force us to question whether privatised pensions are a positive thing for the majority in society.

The alternative is that the price is paid by ordinary people in the indebted country, who are left in the modern day equivalent of debtors prisons. Spending cuts, job losses, privatisations leading to high prices - these are all ways of making sure those at the bottom of society, who have had least benefit from the loans, will bear the brunt. This so-called 'logic' has led us to a world in which financial institutions have become completely divorced from the societies they serve, and in which inequality has grown beyond belief. It must change. That's why we are part of the global Jubilee movement and why we will continue to speak up for ordinary people in countries throughout the world.